10 Unexpected Things Ruining Your Credit
We often get told exactly what we need to do in order to build up our good credit, but there are also small things we’re doing that we might be causing our bad credit and not even know it. And while many of us assume it’s simply a matter of stopping our overspending, and paying off our balance in full every month that will save us, there are also several surprising ways we’re causing ourselves to have a poor credit rating and not even know it. Until now.
Applying for more creditAlthough you might assume that having lots of credit can only be good for your credit rating, in actuality, every time you apply for anything from a department store credit card to a new loan, it pings your credit rating. The more you apply, the more high-risk you appear to lenders, and your ability to get new credit will wane over time.
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Canceling zero-balance credit cardsYou’ve paid off your credit card — congratulations! But before you decide to cancel the card all together, consider holding on to it. When you cancel a card, it reduces your total credit amount, which, if you hold balances elsewhere, will raise what’s called your credit utilization ratio — meaning you’ll have higher debts but less credit overall. It may also shorten the age of your credit history, making it look like you haven’t had good standing for very long.
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Being someone's co-signerAlthough it seems like a no-brainer, saying no to co-signing on someone else’s loan should always be a hard no — no matter what. Whenever you co-sign to help someone else out, it could end up hurting your credit in the long run due to the nature of co-signing.
If your co-signee falls behind on bills or stops paying the debt all together, you take on responsibility for the debt, and that will have a negative impact on your credit rating. Even one missed or late payment will show up as a negative on your score, so avoid falling into the helpful trap of co-signing.
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Renting a carBet you didn’t know that renting a car can negatively impact your credit rating! If you’re thinking about renting and saving some credit for your trip, think again — while you think it might be better to use a debit card instead of your credit card in order to rent, many car rental companies not only check your credit rating before renting you a car via debit, but they also may hold your rental deposit for up to 15 days, impacting the cashyou have available to you.
Even the rental company’s credit check can impact your credit score — if the company’s check is considered a ‘hard inquiry’ (like when you apply for new credit), it will decrease your credit score by several points.
Your best bet? Shop around, ask questions, and only rent a car if absolutely necessary.
Missing even one paymentSometimes it happens – despite our best laid plans, we might miss a payment during a particularly hectic month. But missing even one payment can ding your credit before you have a chance to get caught up.
The solution? Pay your late payment as soon as possible within a 30 days of the initial missed payment. Creditors have to wait 30 days after the missed payment to report the miss before it will affect your credit. And if you’re going to be really late? Better call your creditor and try and make alternate arrangements.
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Closing old accountsDo you have a credit card you haven’t used in a long time and you’re thinking about closing it? Think again. Your credit score has as much to do with your debt ratio and on-time payments as it does your long term credit history.
Obviously, there might be a very good reason to close out your account, but think twice, and when in doubt, contact your bank and ask to speak to a banking specialist. And while you’re there, don’t forget to ask how you can save for retirement!
Paying off your credit card too quicklyIt seems counterintuitive, but paying off your balance as soon as possible can affect your credit score the same way as missing a payment all together. Carrying a balance, even for a short time, shows you’re using your credit and as long as you’re paying your debt back eventually (and on time), using your credit this way will have a positive effect overall.
Your best bet? Save credit purchases for larger items that you can pay back both principal and interest on over several months.
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Always paying lateLike missing a payment, always being behind on your repayment has a negative impact on your credit score, too. And beyond your credit score, keep in mind that most credit card companies issue interest on the daily so getting that debt paid down is important.
If you’re always paying late because you’ve got too much debt, there are ways to better keep track of your spending and reduce your credit card debt once and for all. You’ll have to buckle down, but it’ll be worth it.
Keeping a high balanceWhile keeping a low balance might seem easy enough, credit card debt in particular can creep up on us. And while we might be comfortable making those payments and chipping away at it, a long-term, looming high balance will affect not only your credit score, but how banks see your ability to pay back loans like mortgages or car payments.
Not sure what the sweet spot is? Most lenders look for a ratio of no more than 30% of a balance against the full loan amount, so making bigger principal payments, and living within your means is the way to go.
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Not being proactive when trouble arisesMaybe you’ve lost your job, or an emergency vet bill showed up after Rover accidentally ate your remote control — batteries and all. While the unexpected can happen, ignoring it, or trying to maintain the status quo without touching base with your lender can lead to disaster.
If something does come up, it’s best to contact your lender immediately. Sometimes, you can have interest payments put on hold, or you can ask for a lower monthly payment in order to get your finances back on track. But you can’t wait until you’re swimming in collections notices. Be proactive, and remember it can happen to the best of us.
Not sure where to begin? Figure out what to say to your lender after learning these 20 financial terms you should know.